tag:blogger.com,1999:blog-1110014885778996459.post8237365946732140306..comments2024-03-28T11:48:09.419-07:00Comments on Idiosyncratic Whisk: Housing: Part 175 - About Mian & Sufi's "extensive margin"Kevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-1110014885778996459.post-35417923786033084632016-09-01T15:12:14.626-07:002016-09-01T15:12:14.626-07:00I hear people complain that the banks didn't l...I hear people complain that the banks didn't lend out the TARP money etc. Without mentioning that the Fed paid zero IOER for 95 years and then started paying them in October of 2008. This baffles me to this day. The Fed now pays more to borrow overnight than the Treasury pays to borrow for 1-180 days. Now that's crony capitalism. How can I get myself some of that?billnoreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-19061595008711049522016-08-25T06:40:00.285-07:002016-08-25T06:40:00.285-07:00So, I just wanted to add Kevin, that since the Fed...So, I just wanted to add Kevin, that since the Fed mispriced risk, it made very easy money available in many areas. That easy money brought demand forward, causing prices to rise irrationally. The ease of loans pushed the prices up. That was even true in, say, Manhattan Beach, where prices shot up and then declined by about 100k. I don't have the exact figures. <br /><br />But obviously Manhattan Beach was not like Fresno, or Stockton or Las Vegas, where prices were cut almost in half as speculators were forced out. <br /><br />Of course, Manhattan Beach, being almost invincible to house priced decline (the decline was small and the prices bounced back), suddenly became in more demand after the Great Recession, and prices are much higher than at the peak price last decade. Gary Andersonhttps://www.blogger.com/profile/15499434824034613894noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-82480038860764513122016-08-23T18:04:00.943-07:002016-08-23T18:04:00.943-07:00MBS failures were the result of Fed mispricing ris...MBS failures were the result of Fed mispricing risk for those bonds. Then, the Fed not only mispriced the risk, causing many of them to fail, but it allowed the commercial paper market to be destroyed, fiddling like Nero. <br /><br />The expectation of housing appreciation spurred HELOC lending. Once HELOC lending was taken away, the economy took a nosedive, but that was a year after the destruction of the commercial paper market. The destruction of commercial lending happened in the Great Depression as well. Only it was even worse then. http://www.talkmarkets.com/content/global-markets/are-perpetual-bonds-helicopter-money-the-new-japanese-plan?post=100254<br /><br />But either way, part of the economy was liquidated due to procyclical policies. And the Fed encouraged appreciation of homes. In Feb, 2004, Alan Greenspan said you could get a "better deal" through an adjustable mortgage. That was a direct encouragement of appreciation. <br /><br />So, the Fed allowed main street to speculate, unknowingly to themselves, and then pulled the carpet out from under them. <br /><br />That is dirty low down Fed behavior. Gary Andersonhttps://www.blogger.com/profile/15499434824034613894noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-79067393251393452712016-08-22T21:22:19.079-07:002016-08-22T21:22:19.079-07:00Thank you for the thoughtful input. I realize tha...Thank you for the thoughtful input. I realize that I have been thinking through these issues as I have been writing the book, but not airing some of those thoughts out on the blog. There are some ways I would re - frame the way we think about these things, but I think I need to reply in a post or a series of posts. The short answer is that I think imputed rent income and life cycle regime shifts are much more important than they are generally made out to be. Debates about these issues can carry on with no mention of rent or of the effects of ownership outside short term capital gain considerations, but they should be the most important factors. And appreciation is not important to me. The reason I take aim at post crisis policy isn't because it led to low prices. It's that it led to inefficient prices that favor the least vulnerable households and create systemic distress. I wouldn't want to favor high prices just for their own sake either, but one way i would disagree with the consensus is that too low prices have been a much larger problem than too high prices. Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-61996227879316806382016-08-22T18:48:19.668-07:002016-08-22T18:48:19.668-07:00Kevin:
It's not clear where your line of thin...Kevin:<br /><br />It's not clear where your line of thinking from the last few posts is going but I'd like to suggest that there is an impossible trinity here.<br /><br />No matter how anyone views the GSEs, the Treasury / Fed response to the crisis, closed vs. open access cities, etc., it's not obvious how it's possible to simultaneously have a) widespread mortgage affordability - low down payments, high LTV, low FICO, GSE-guaranteed 30-year fixed mortgages, b) individual and systemic safety - low risk to borrowers, taxpayers, and the financial system, and c) housing equity appreciation. <br /><br />You can have at most any two of the three:<br /><br />Safety and Affordability does not permit equity appreciation. Safe and affordable access to leveraged equity appreciation is a free call option with no expiration date. This is a perpetual money machine that always ends badly. <br /><br />Safety and Appreciation does not permit widespread mortgage affordability. It's certainly possible to have appreciating equity values in a safe mortgage system so long as the access to credit and leverage is highly restricted. This is essentially the mortgage-equivalent of a closed access city with the government ensuring that equity is preserved by choking off credit the same way it chokes off new construction. <br /><br />Affordability and Appreciation does not permit safety since this becomes an open-ended call on unlimited government guarantees, Fed / Treasury backing, and permanently growing private sector investment. This is the same model behind what used to be the risk-free debts of peripheral European banks and sovereigns as well as the bonds backing underfunded State and local defined benefit pensions. It works as long as the guarantor can repay the debts in money it can print but it doesn't work very long for anyone else.<br /><br />In more colloquial terms this is the conflict between housing as a depreciating and high-maintenance consumer durable (in terms of consumption) and housing as an appreciating, leveraged, and highly tax-advantaged asset (in terms of investment). It's certainly possible to keep both of these concepts going at the same time provided there's perpetually increasing leverage, credit access, tax-advantages, etc. but ultimately the system breaks down.<br /><br />My feeling is that your criticisms of the GSEs, etc., while well-founded, are going to wind up with the systemic breakdown, whether in the trilemma or dilemma framing above.<br /><br />Harry Chernoffhttps://www.blogger.com/profile/12034671239056869403noreply@blogger.com